Geithner to meet Chinese vice premier in Beijing

Speculation builds that Beijing's ready to allow the yuan to appreciate

By

WilliamL. Watts

WASHINGTON (MarketWatch) - U.S. Treasury Secretary Timothy Geithner will meet with a Chinese vice premier on Thursday, amid mounting speculation that Beijing will soon alter the controversial "peg" between its currency and the U.S. dollar.

Geithner will meet in Beijing with Wang Qishan, the Chinese vice premier responsible for economic affairs, after Geithner's two-day trip to India, the Treasury Department announced Wednesday.

"The secretary and the vice premier have been working together to find an opportunity to meet in person for some time," Geithner's spokesman, Andrew Williams, told reporters in Mumbai.

Geithner will also stop in Hong Kong to meet top officials, including Chief Executive Donald Tsang.

The Financial Times reported Wednesday that a senior Chinese government economist told reporters in Beijing that China could widen the daily trading band for the currency, known as the yuan, and allow it to resume its gradual appreciation.

A similar rise in the value of the yuan
USDCNY, +0.4041%
versus the dollar was brought to a halt in July 2008 as China moved to protect its exports as the global financial crisis deepened.

One dollar is roughly worth 6.8 yuan.

Geithner has come under renewed pressure by some U.S. lawmakers, business leaders and union officials to label China a currency manipulator in its semi-annual currency report. They contend the peg has left the yuan significantly undervalued to the detriment of U.S. exporters.

For their part, Chinese officials have denied that the yuan is undervalued.

Geithner announced over the weekend he would delay the publication of the currency report, which had been due to be presented to Congress on April 15.

Meanwhile, a Chinese news report said the nation's central bank could raise interest rates in the current quarter against a backdrop in which first-quarter economic growth has been forecast as potentially exceeding 11%. Read about China's potential rate move.

The report, by China Securities News, said Beijing may regard an inflation rate of 3% as the threshold that would trigger rate hikes regardless of whatever moves the U.S. makes on interest rates.

Rising inflation could nudge Chinese officials to consider allowing the yuan to rise. A higher yuan would put pressure on import prices.

Separately, other reports said the People's Bank of China may resume issuance of three-year bills for the first time since June 2008 in an effort to absorb excess liquidity. Read about the possible bond move.

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